MMT and MM: The Bone of Contention

       As I wrote about yesterday, Scott Waldman considers MMT and MM-depsite what both schools may think-to be more frenemies than pure enemies. Of course to get philosophical "there's a thin line between love and hate."

     http://diaryofarepublicanhater.blogspot.com/2012/04/market-monetarism-and-mmt-frenemies.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

      There clearly are some parallels. Both seek stability through aggregate spending. The MMT JG actually occupies a very similar place to NGDP for the Market Monetarists. Both schools were featured in a recent Economist article as new heterodox schools. Really the more you think about it there is a good deal of similarity.

    Incidentally I think real kudos go for Steve in pointing a lot of this out. The MMers and MMTers mostly don't seen any family resemblance. I do think there are also as well as the similarities significant difference that we will look at now, but Steve does a good job of showing similarities as well which is important-it's kind of a reality check. While I appreciate a lot of the MMTers insight I will admit they don't always have the smartest political sense-in terms of their bedside manner in recruiting. They kind of look at themselves as the New Galileos up against the Flat Earthers but being called a Flat Earther even when you are genuinely open to further understanding doesn't exactly charm the pants off of people.

     Steve is therefore a welcome departure form this-I don't know that he's strictly an MMTer, but maybe more like myself, something of a Fellow Traveller. For my part I don't answer to the MMT name at least not yet but I think I would to Post Keynesian.

     So where do the two schools differ? Obviously while both seek to anchor aggregate spending-Sumner's NGDP-they do it in very different ways. The Market Monetarists see it being done all through the Fed through the primary mechanism of the "expectations channel." The MMTers on the other hand see it being driven by fiscal policy, specifically by paying the unemployed a low steady wage for government provided employment.

    However this takes us to where the really difference is. Or at least one major one. The question of the transmission mechanism. Sumner has said that there's no one transmission mechanism and trying to insist on naming one is too hard and not necessary.

     This does not please the MMTers at all, or indeed would it please any of what Sumner and Nick Rowe rather derisively refer to as "hydraulic Keynesians."

     http://www.themoneyillusion.com/?p=11555

      "The biggest problem in this whole discussion is explaining game-theoretic concepts to hydraulic Keynesians, whose balance sheets and income statements (stocks and flows) don’t contain any reference to expectations, and so just cannot grasp the significance of things like targets and credible threats and how they work."

      "My Chuck Norris metaphor was an attempt to help them understand this. But they keep trying to see where Chuck appears on the current balance sheet and income statements. So they still don’t get it.
New Keynesians, of course, are very different from the old hydraulic Keynesians of the 1950s and 1960’s. (And not all Keynesians were hydraulic even then)."

      Yes. Nick's famous Chuck Norris explanation.    

       http://worthwhile.typepad.com/worthwhile_canadian_initi/2011/10/engdp-level-path-targeting-for-the-people-of-the-concrete-steppes-.html

      I don't hate the analogy as much as some do:

       "What is really odd to me is that if you follow Scott and Nick enough via their other posts and comments you get the sense that they are of libertarian bent, favoring little intervention on the part of The State in most things. Yet here, with the most sought after thing in our economy, they want an autocratic thug who will just kick your ass if you refuse to spend. Like the soup Nazi they are saying ” No safe assets for you!!”. 

     That comment was I think by my friend Greg. But I don't see this so pejoratively-indeed going back to Keynes, the savers are the problem with their Paradox of Thrift. So for my part I have no problem putting a little pressure on the savers. And I think any "hyrdraulic Keynesian" won't if they realize that savers are a big part of the problem right now.

     However I agree that it's curious how little intellectual curiosity the MMers seem to have about the transition mechanism. Indeed, as Steve says,

     "If the market monetarists’ theory of depressions is correct, then their position is correct. They are famously vague and prickly on the question of what instruments or “concrete steps” central banks will use to achieve their objective. That is because it doesn’t matter one bit, as long as those instruments are persuasive. Whether police wield pistols or tanks or tear gas or nightsticks to keep the peace really doesn’t matter, as long as their choice is sufficiently intimidating that people are deterred from resisting their authority. We only care about the weapon they’ve chosen when deterrence has failed and they are forced to act. Then we are faced with damage from the violence required to sustain their credibility. Even then, if we are certain they will restore order quickly and that incidents of disorder will be rare, we might not worry so much over means. But if conditions are such that lawlessness will not be deterred, there will be no general peace but frequent mêlées

      http://www.interfluidity.com/v2/2392.html

     Nick, Scott and company refer to often the "the people of the concrete steppes." Here is Nick:

     "So this is written for the people of the concrete steppes.First off, you aren't thinking about this right.

    "Sure, I've used mechanical metaphors for monetary policy in the past. But those metaphors only take you so far. Machines don't have expectations; people do. The actions that people take now depend very much on their expectations of what other people will do, and on their expectations of what the central bank will do."

     "You want me to tell you a story in which the central bank pulls a lever, and that lever causes another lever to move next, followed by another lever, then another, spelling out a causal chain from beginning to end, where the end is a higher level of NGDP. But economics isn't like that. Because people aren't like that."

      So "hydraulic Keynesians"are the ones who somehow-in Nick and Scott's mind-think about the idea of a transmission mechanism to mechanistically.

      What occurs to me is that Market Monetarism-this is true of Monetarism in general-is very much like the economy's psychoanalysts."

       If the "Old Keynesians' think about the economy in "hydraulic" and mechanical terms then the MMers think about it in  psychosomatic terms.You could say then the Old Keynesians want to treat the economy's problem like a medical problem but the Market Monetarists see it as in someway a "mental recession." There's a sense that this is true of all Monetarism which always sees the economy in these terms.

       So we could say that the hydraulic Keynesians see it as a mechanical-and so real problem-whereas the MMers see this as being psychological issue the economy needs to be talked out of.